Occidental Petroleum: Buy, Sell, or Hold?

Occidental Petroleum (NYSE: OXY) has been a popular energy stock since Warren Buffett invested in it several years ago. Berkshire Hathaway holds over 265 million shares in the oil and gas company and has maintained its investment despite volatility in the stock over the past few years.

The company is paying down debt and could be well positioned as demand for energy grows over the coming decade. If you're a shareholder or considering opening a position in Occidental, here's what you should know to decide whether it's a buy, hold, or sell today.

Reasons to buy or hold

One of the biggest criticisms of Occidental was its massive debt load following its 2019 acquisition of Anadarko. At the time, the company's debt load spiked to nearly $48 billion. This came around the same time as the COVID-19 oil crash. However, in the past 20 months, the company has aggressively paid down $13.9 billion in debt and improved its financial footing.

The company has strong earnings performance despite the drop in oil prices, thanks to strong results from its midstream and marketing segments. During the year, it generated $4.3 billion in free cash flow. Its midstream segment surpassed its annual guidance for pre-tax income by more than $550 million, driven by strong performance in the Permian Basin and higher-than-expected sulfur pricing at its Al Hosn gas facility in the UAE.

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Longer term, demand for gas from data centers, industrial operators, and other utility providers could provide a strong tailwind for the natural gas sector. Last year, Occidental sold an average of 2,278 million cubic feet per day (MMcf/d) of natural gas globally and holds 7,745 billion cubic feet (Bcf) of proven natural gas reserves.

Reasons to sell

As part of its debt reduction process, Occidental sold its chemical business, OxyChem, to Berkshire Hathaway for $9.7 billion. Selling OxyChem allows the company to focus on U.S. onshore oil and gas production and reduce its debt balance. However, it also removes one of the more balanced aspect of its business that help insulate it against volatility in energy commodity prices. As a result, earnings could be more volatile.

On top of that, Occidental's capital structure could limit its upside potential. Even though the company has reduced its principal debt, it still has approximately $8.3 billion in preferred stock outstanding held by Berkshire Hathaway. Occidental paid $679 million in preferred dividends last year and is prohibited from paying common dividends if the 8% preferred dividends are not paid in full.

Buy, sell, or hold Occidental?

Occidental has done a good job shoring up its balance sheet and provides investors with a way to profit from rising oil and gas prices. That said, it's not as diverse as some of its larger integrated competitors, such as ExxonMobil and Chevron, especially after selling its OxyChem business. As a result, you are more vulnerable to falling oil and gas prices.

If you're bullish on energy commodity prices from here, Occidental is a good stock to play that upside. But if you're worried about oil prices declining from here, you may want to sell the stock after its 24% run-up to the start of 2026.

Courtney Carlsen has positions in Berkshire Hathaway, Chevron, ExxonMobil, and Occidental Petroleum. The Motley Fool has positions in and recommends Berkshire Hathaway and Chevron. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy.